The state budget reportedly goes into a cash deficit this month. We dedicated much of yesterday’s newsletter to the problem and also wrote about it here. State law requires the governor to make across-the-board spending cuts to bring the budget into balance. A special legislative session is the better way to handle the problem.
The Washington Research Council takes a look back to the 1980’s, when the state borrowed to cover a revenue shortfall. Emily Makings writes,
As I wrote in April, the state can borrow to balance the budget, but the ability is limited and costly. I gave the example of the early 1980s, when state borrowing led the bond rating firms to reduce Washington’s credit rating. Now that the Office of Financial Management (OFM) is projecting a cash deficit in the general fund–state (GFS), I’ve been reading more about what happened back in the ‘80s.
The GFS went into cash deficit in October 1980. According to the Legislative Evaluation & Accountability Program (LEAP) Committee, to address the problem, the state used interfund loans beginning in October 1980. (Interest is due on these interfund loans.)
It’s a detailed and fascinating piece of fiscal history that we encourage you to read. In a series of hiring freezes, budget cuts, loans, and more the state finally got things sorted.
Eventually the shortfalls and cash-flow problems were resolved, but the history shows that borrowing (whether from private banks or from other state funds) is costly and tends to compound.
If there’s a silver lining here, it’s that the situation in the early ‘80s forced the state to establish “a much better money-management and -forecasting system,” as Seattle Times columnist Richard W. Larsen wrote in 1985 (Larsen, “State budget problems – they were worse four years ago,” Seattle Times, Jan. 16, 1985). Indeed, on Jan. 17, 1984, Gov. Spellman established a Forecast Council: “The importance of economic and revenue forecasting has become very evident in recent years.” (Later in 1984, the Legislature acted to create the Economic and Revenue Forecast Council.)
Washington does have better systems in place now. As a result, state leaders know that the budget faces a multi-billion budget shortfall. And, as Makings writes, they know the projected cash deficit requires action. So, now it’s time to act.